20190404-IBOR Rate will be replaced in 2021


ITM Trading (How Banks can Modify Your contracts During the Reset, 4/20/18):


-The most important number in the world is IBOR rate, because all the contracts in the world are tied to it.   It is the bench mark interest index most widely used.

-IBOR (Inter-bank Offer Rate) will be replaced in 2021.  Over 370 trillion contracts are tied to LIBOR.  At least 300T (80%+) are derivatives.  

-IBOR will be replaced by RFR.

-65% (240.5 trillion) of all contracts mature after 2021 and will have to be 
amended/restructured/changed.

-IBOR or LBOR are made up by 18 largest global banks.  They decide on how much the overnight borrowing rates will be among themselves.

-The contracts that are affected are OTC derivatives (interest rate swaps), exchange-traded derivatives (interest rate options, futures), loans (business loans, mortgages, credit cards, auto loans, consumer loans, student loans), bonds and floating rate notes (corporate and non-US government bonds, leases, trade finance), short-term instruments (time deposits, commercial paper), securitized products (mortgage-backed securities (MBS), asset-backed securities(ABS),commercial mortgage-backed securities (CMBS), collateralized loan obligation (CLO), collateralized mortgage obligation (CMO), other (late payments, discount rates, overdraft) 
The types of contracts that affect ordinary people are high-lighted in orange.

-Legally, all the existing contracts after 2021, have to be paid, restructured or they will default.

-For mortgages and consumer loans, the mortgagee typically has ultimate authority to name an accessor rate.  Consumer loans are more varied, but provide similar flexibility to the lender.   In other words, the lenders/banks will set the new rules and rates.   The consumers have no saying on this.

-For derivatives, if the LIBOR is not available, there is either no alternative index option or 100% consent required.   That means they have to restructuring every single one of these contracts?!





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